A Modern Power Grid Can Deliver More Than Just Resiliency
Texas has proven that a commitment to market solutions and diverse electrical infrastructure can be a recipe for success. Under the restructuring of the power market and initiatives like the competitive renewable energy zone, we saw investment take off and energy prices fall. Texas has greatly benefitted from its competitive energy market with power prices consistently below the national average. Electricity rates were $0.003 per kilowatt-hour lower than the U.S. average between 2002 and 2017.1
However, February’s extreme weather event demonstrates that work must continue if we hope to capture the advantages of our innovative policies. Never before has the state endured weather that pushed all 254 counties into a state of emergency. Even so, such an event was not entirely unpredictable. Similar events have occurred over the last century that could have, and sometimes did, lead to similar issues, including in 2011, 1989, and 1983. Knowing this, Texans – and the rest of the country – need an energy policy that will protect us against such extreme, but rare, events that threaten to upend our daily lives. As the state continues to tally the costs of last month’s events, it is becoming apparent that wise investments now can safeguard us from catastrophe in the future, while also saving money in the long run.
Below, we outline three areas for discussion and focus. In the wake of last month’s disaster, Texas specifically has an opportunity to fortify its position as a global energy leader and blaze a trail for others to follow by acting thoughtfully and intentionally to guide the evolution of our electric grid.
1. Climate protection for the grid
Teeing off last month’s issues was the fact that parts of Texas’ grid were simply not built to withstand the sustained freezing temperatures. In particular, generation assets went offline at an alarming rate, leading to a shortfall in electric supply that forced tens of thousands of megawatts (“MW”) of customer load to be shed and left millions in the dark. This did not need to happen. Natural gas meets half of Russia’s energy needs,2 and the Ross Island Wind Farm has been operating in Antarctica since 2010.3 Clearly cold weather is not incompatible with our generating sources. Yet, nearly every power source we rely on, including nuclear, coal, wind, solar, and natural gas, failed us. To prevent this from happening again, we need to take a proactive approach to protecting our generation assets.
This begins with weatherizing our generating fleet. Winterizing wind turbines with water-resistant coatings or heating elements that run on parasitic power is a simple solution to prevent freeze ups. Similarly, insulating our natural gas infrastructure, from the power plants and instruments, to the pipelines and compressors, all the way to the wellhead, will help to prevent the conditions that led to a shortage in power supply. Better coordination between fuel suppliers, gas storage entities, and pipeline operators can resolve many logistical difficulties that plants faced in receiving the fuel they needed to operate.
Texas built its grid for the heat, but extreme weather events of all types are becoming the norm across the state. Houston, for example, has experienced three 500-year flood events since 2015.4 Accordingly, we must update our risk models so that our system is prepared to handle the heat, cold, and anything else Mother Nature sends our way. Retrofitting existing equipment will be expensive, but cost-effective when compared with last month’s outage. Just as important is to ensure that new generating infrastructure is built to withstand all manner of extreme conditions. Some would use the events of last month to push Texas toward a capacity market. A capacity market may or may not be good policy for Texas, but last month we had enough generating capacity, we just did not have enough capacity that worked under extreme conditions. A first step, which the legislature should consider, is to provide for regulatory oversight of our generating assets to ensure their ability to operate in extreme weather conditions. Capacity does little good when the underlying equipment cannot function.
Simultaneously, Texans should call on the state to establish an Extreme Climate Commission, comprising stakeholders from all fields, including industry, business, academia, and various subject-matter experts. Their combined expertise can help to guide the evolution of Texas’ grid toward cost-effective investments under a cohesive energy policy.
2. Investing in storage technology
Today, few people think of battery storage as a utility-scale resource. But utility-scale storage is a nascent technology, poised to transform the power industry. As battery prices have fallen sharply in recent years, technological advancements have simultaneously enhanced storage capabilities, bringing us to a point at which storage is a viable grid solution. Already, individual battery installations are being integrated into the global energy mix. In Monterrey Bay, California, the world’s largest utility-scale storage system has recently gone online. With a capacity of 300 MW, it can hold enough electricity to power 300,000 homes for 4 hours.5 This power could be critical at times when generating capacity is temporarily down due to weather events or intermittency. Indeed, integrating battery storage into the grid is imperative for renewable resources to reach their full potential. Utility-scale batteries can store excess power when solar panels and wind farms are over-producing and feed it back to the grid when they are not. At a smaller scale, home battery storage can similarly keep the lights on when other resources fail. Moreover, a robust storage network can maximize the effectiveness of smart-grid solutions and programs, including load shifting, frequency regulation, and demand response, contributing to overall grid stabilization. Investments in these technologies have exploded recently as grid storage, electric vehicles, and other technologies have risen to prominence. We should encourage our policymakers to do even more to promote these technologies.
3. Retail vs. industrialization of pricing
Many electric customers received a rude awakening this week as power bills came due following the outage. In the Texas power market, electricity is sold at wholesale before being transmitted, distributed, and then resold by retail electric providers (“REPs”) to end customers. During the outage, the wholesale price of electricity rose to $9,000 per MW-hour (“MWh”). For context, the average price per MWh for all of 2019 was $38 per MWh.6 Those prices are meant to signal generators to start producing, but instead they have worked their way into many customers’ energy bills. This has left customers on market-price plans with bills in the tens of thousands of dollars, even as they went without power for days on end. Customers should not be exposed to this kind of risk. That is why guardrails should be established so that consumers with little knowledge of the wholesale power market are not at the mercy of the hedging policies of individual REPs.
As our infrastructure across the country ages we have opportunities to invest and modernize in a sector few people spend time thinking about until something goes wrong. To ensure the next generation enjoys modern, reliable power sources, we must continually improve our system with an eye toward resilience. This will take new ideas, investments in new technologies, and a focus on climate protection. Texans already enjoy the benefits of a diverse and competitive power market. If we keep an open mind and enact thoughtful policies, we can protect that market against future Black Swan events. This is where the market needs a minder.
1 Peter R. Hartley, Ph.D., Kenneth B. Medlock III, Ph.D. & Olivera Jankovska, Electricity Reform and Retail Pricing in Texas, Center for Energy Studies, Baker Institute for Public Policy, Rice University, available at https://www.bakerinstitute.org/research/electricity-reform-and-retail-pricing-texas
2 U.S. Energy Information Administration, Country Analysis Brief: Russia, available at https://www.eia.gov/international/content/analysis/countries_long/Russia/russia.pdf (last accessed Feb. 25, 2021).
3 The Ross Island Wind Farm Project, Power Technology, available at https://www.power-technology.com/projects/rossislandwindfarm/ (last accessed Feb. 25, 2021).
4 Christopher Ingraham, Houston Is Experiencing Its Third ‘500-Year’ Flood in 3 Years. How Is That Possible?, The Washington Post, available at https://www.washingtonpost.com/news/wonk/wp/2017/08/29/houston-is-experiencing-its-third-500-year-flood-in-3-years-how-is-that-possible/ (Aug. 29, 2017).
5 Cheryl Katz, In Boost for Renewables, Grid-Scale Battery Storage Is on the Rise, School of the Environment, Yale University, https://e360.yale.edu/features/in-boost-for-renewables-grid-scale-battery-storage-is-on-the-rise (Dec. 15, 2020).
6 U.S. Energy Information Administration, Wholesale Electricity Prices Were Generally Lower in 2019, Except in Texas, Today in Energy, available at https://www.eia.gov/todayinenergy/detail.php?id=42456 (Jan. 10, 2020).
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.